Insert expletive here

NOW Pension’s decision to charge new customers £40pm from October has not gone down well with supporting intermediaries. One grumpy accountant commented 

We have one client already signed up with Now and about to stage in two weeks. As I understand it the charge won’t apply to them. But we have a few clients staging next year who didn’t need to sign up yet. We were waiting until later this year to set them up with Now but it would appear this new charge will apply to them. They won’t want to pay it so we may have to look at NEST or something similar. It would be a shame not to have all the clients on the same system. We shall have to learn another system all over again. I thought we had AE all sorted.

If this is the quality of decision making going on within our accountancy practices, it is hardly surprising that now is having to set up a new support centre.

IMO “having AE sorted” does not mean creating a conveyor belt off which drop pre-packed pension solutions. Romantic as the notion sounds, the investment of a substantial proportion of people’s wages for up to 40 years should be a matter for some consideration.  When the choice is on behalf of an entire workforce, the duty of care should, we hope, be worth the effort of learning “another system” – or two.

The quote is also indicative of an attitude I have detected in the accountancy profession which begrudges any erosion of their potential AE revenue stream. The thought that the £40 pm being charged by NOW might save the accountant at least £40pm chargeable time providing ongoing support is clearly not registering (at least with the aforesaid grump-meister).

No fundamental problem with an employer charge

I am not against NOW charging employers for support, Standard life have been charging between £70 and £100 pm since the launch of Good to Go, a product we have praised on these pages as offering good value for money (as the service works).

The good people at People’s pension and those chirping in the NEST have now got the luxury of deciding whether to follow suit or hold out with no charge and get even greater market share. Legal and General continue to look a very attractive option with no entry costs and the prospect of some tasty payroll integration through pensionsync (albeit at a cost).

Desideratum X2

The £40pm cost needs to be justified by exceptional service. NOW has not provided exceptional service recently and if all the £40pm does is bring it to parity with its major rivals, then it will indeed struggle -especially as payrolls and contributions dwindle in 2016.

Once we have clarity on what the £40 is buying , I’d like to see two things happen,

The first thing I’d like to see is NOW taper its charge with it being waived for employers with less than workers, the £40pm makes sense for employers with more than 20 workers, I’d go for a £20 at<20 approach.

The second thing I’d like to see is a proper reaction from NOW’s principal competitors. If there is a time to introduce employer borne charges – now is that time.

I expect that NEST have some ridiculous clause in its constitution that requires parliamentary intervention for it to charge customers for services. But I’d like to see Helen Dean explain how the burgeoning public debt generated by NEST is likely to be repaid. If NEST continues to offer services for free, is it distorting the market?

As mentioned above, Legal and General’s preferred support route is through the “new middleware” of data integration and this will not be free. It will be priced into the software support packages of the payroll suppliers or will be billed directly to payroll bureaux.

Unless Peoples have a radically different type of client, they are currently absorbing the pain, I’d like to see them confirm that they will keep a zero price at entry and ongoing.

It would be better if Peoples showed its hand sooner.

Put up or shut up

The long-term future of auto-enrolment depends on clear pricing models which allow employers to compare contracts with providers in terms of overall costs. I actually welcome the NOW approach as it reduces the chances of unsustainable marketing cross-subsidies (aka buying business).

If Peoples and NEST and L&G think that they can sustain their current pricing models indefinitely, they should say so – and why. If not, they should show their hands and follow NOW’s suit.

What nobody wants is major (or even minor) players failing because they do not have the balls to charge what they need to charge to offer a proper service.

There is no “magic bullet” and NOW have demonstrated that they have an obligation to their shareholders as well as their future customers and supporting intermediaries.

Consequently, I think they have done the market a failure.

The acid test – will paying more – get more?

We (www.pensionplaypen.com) are about to embark on a major market survey on service levels , comparing customer satisfaction levels between the major providers and delivering our results early in the new year.

It’s much to the credit of one of the major market players that they have placed this job in the hands of an independent arbiter. The timing of the survey should enable us to chart the progress of NOW pre and post charge and determined whether customers get Value for Money from the £40 paid.

That is assuming that grumpy accountants allow £40 pm of potential fee revenues to go elsewhere!